Marlene Grecco

#1 Financial Benefit of Homeownership: Family Wealth

May 18, 2020

While
growing up, we were taught by our parents and grandparents that owning a
home is a financially savvy move. They explained how a mortgage is like
a “forced savings plan.” When you pay rent, that money is lost forever.
When you make a mortgage payment, much of that money accumulates as
equity in the home. So, what exactly is equity?

The equity in your
home is the amount of money you can sell it for minus what you still
owe on the mortgage. Every month you make a mortgage payment, and every
month a portion of what you pay reduces the amount you owe. That
reduction of your mortgage every month increases your equity.

A recent study by CoreLogic
explained that homeowners gained substantial equity over the last
twelve months, and are essentially sitting on large sums of cash in
their homes. In the study, Frank Nothaft, Chief Economist for CoreLogic explained:

“The
CoreLogic Home Price Index recorded a quickening of home price gains
during the fourth quarter of 2019, helping to boost home equity wealth.
The average family with a mortgage had a $7,300 gain in home equity
during the past year, and a total of $177,000 in home equity wealth.”

For
most families, their home is their largest financial asset. This
increase in equity drives the net worth, or family wealth, of the
homeowner. Renters are not earning that benefit. Instead, they’re
building the net worth of their landlord.

Bottom Line

Home
price growth will moderate during the pandemic. But once a cure is
available, most experts agree that home values will again begin to
appreciate at levels similar to what we’ve seen over the last several
years. In the long run, our family elders will be proven correct: owning
a home is a savvy financial move.

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